Arbitrator Must Follow Fair, Evidence-Based Process Even In Ex-Parte Proceedings: Bombay High Court

On 15 April, the Bombay High Court held that even in ex-parte proceedings, an arbitrator must ensure a fair, evidence-based and unbiased process in terms of Section 25 of the Arbitration and Conciliation Act, 1996, and cannot treat claims as established merely because the other side remains absent.

A Division Bench of Justices Arun R. Pedneker and Vaishali Patil Jadhav dismissed the appeal filed by Shinde & Sons and upheld the order of the District Judge at Beed setting aside the arbitral award under Section 34 of the Act. It held:

“It was necessary for the arbitrator to follow the procedure under Section 25 of the Arbitration Act. Although reference is made to Section 25 of the Act in the award, the evidence in support of the claims appears to be lacking and the claims cannot be said to be established.”

The dispute arose from a government irrigation contract awarded in 1990–91 to Shinde & Sons for construction of the Kothala Branch Canal, which was completed on 21 June 2006, with the final bill drawn on 11 July 2006.

Earlier disputes between the parties led to civil suits in 1994 and 1995, which were later compromised, with the contractor waiving claims for revised rates and both sides agreeing not to pursue arbitration, resulting in revival of the contract.

Fresh disputes later arose regarding delay and additional work claims, leading to invocation of arbitration in May 2006. After multiple changes in arbitrators, Mr. B.B. Jadhav was appointed as sole arbitrator in March 2014.

GMIDC challenged his appointment before the High Court and the Supreme Court, but the arbitrator proceeded with hearings between August and November 2014. He passed an ex-parte award on 27 January 2015, awarding over ₹102.45 crore with interest in favour of M/s. Shinde & Sons against the Godawari Marathwada Irrigation Development Corporation.

The District Judge at Beed set aside the award on 11 September 2018 under Section 34 of the Arbitration and Conciliation Act, 1996.

Shinde & Sons challenged this order under Section 37, arguing that the award was reasoned and that the District Court had exceeded its jurisdiction, while GMIDC opposed the appeal on the ground that the proceedings were rushed, unsupported by evidence, and violative of natural justice.

The High Court rejected the jurisdictional objection, holding that in the absence of a designated seat or venue, jurisdiction would lie with the court where part of the cause of action arose, thereby affirming the competence of the Beed court.

On merits, the Court held that the arbitrator proceeded in a one-sided manner across seven hearings without ensuring participation of GMIDC or properly scrutinising the claims placed before him. The Bench found that the arbitral award was unsupported by evidence and was passed in a biased manner, observing:

“Lengthy award is passed citing long list of case laws, but is completely bereft of evidence and the conduct of the arbitrator also appears to be biased. The process, to say the least, appears to be biased and against the respondents. The arbitrator's award is thus patently illegal and also shocks the conscience of the court and the award is in conflict with basic notions of justice.”

It held that Section 25 requires independent evaluation even in ex-parte proceedings, but found that the award lacked evidentiary foundation, including affidavits, technical material, or proof of additional work, and relied instead on untested assertions.

The judges further noted that the arbitrator ignored earlier civil court proceedings and the compromise between the parties, despite their direct bearing on the dispute. They concluded that the award suffered from patent illegality, procedural unfairness, and bias.

Accordingly, the High Court dismissed the appeal while granting liberty to the parties to pursue fresh arbitration in accordance with law.

Appearances for Appellant (M/s. Shinde & Sons): Advocate G.K. Naik Thigle.

Appearances for Respondents: Senior Advocate P.R. Katneshwarkar, i/b, S.G. Bhalerao (R-1).